NAB BUIL ILDERS PRESENTATION GET THE MONEY!!!!
BUILDING UNDER CONTRACT • Requirements to be provided to NAB: • Signed and dated fixed builder contract • Plans and specifications – ie Council approved plan and building permits • Copy of builders insurance
Progress Claims under Fixed Price Contract • NAB inspections officer, will complete 3 inspections: • First at finance approval request, • Second when slab is poured and • Third with Occupation Certificate and when final claim is requested, • Each drawdown request in terms of contract needs to be signed by customer confirming all works have been completed, prior to release of funds, • If property is specialised, inspection office may require to undertake additional inspections,
Owner Occupied/Speculative House Construction • Construction undertaken by you (the builder) • Plans, permits and licences, • Detailed expenditure budget – can be same as building contract, • Quotations and estimates, • Work time schedule, • Building and indemnity insurance
Progress Claims under Owner Builder/Speculative House • NAB inspections officer will complete all inspections. Normally these would align to 6 or 7 progress claims as per a normal build, (No cost) • Claims would include invoices to be paid and signed progress claim request, • Final claim would require Occupancy Certificate • If speculative, funding would be treated as commercial under Australia Prudential Regulatory requirement's or if held with a lease, would revert back to a home loan
Land purchases • Land purchases for construction and on selling would be treated as commercial loans, • Same rules as owner builder would apply • Lending ratio would be 70% (max)
Land Purchases for Subdivision • Land being purchased for development is treated as commercial development • Funding is limited to 50% while land is treated as Englobo – not developed • Funding for development is assessed based on: • Feasibility, ROE, Pre-sales (preferred is sufficient to cover debt) and time to complete (holding costs)
FEASIBILITY • Feasibility Study would include, but is not limited to the following: • Land acquisition costs, incl Stamp Duty and legal costs, • Council Contributions, • Consultant/Professional Fees • Project Manager Costs (if appl) • Construction costs, incl Power, phone • Contingency
Funding for Land Development • NAB would engage Panel Valuation firm to undertake “as if” complete valuation or QS (GRV or in one line) • NAB would lend max 70% against this figure • At each stage of completion, Panel Valuer or QS, would inspect that work has been completed, • NAB would then fund 70% against invoices • Once development is completed and land sales occur, 100% of the proceeds would be used to clear outstanding loan.
Questions • ?????? THANK YOU
POLICIES AND PROCEDURES FOR CASH FLOW MANAGEMENT Orange – 17 th March 2016
Cash flow management Essentially MANAGING money in and money out Invoicing Debtors Expenses Other systems and processes
Cloud based software Join the cloud! Live example on Xero software
Invoicing Real time invoicing Xero has options to do this on a tablet (but not phone) Make it easy for the customer to pay Email option for immediate sending Ensure bank details easy to find Set up payment services – can pay upon receipt of email Smaller invoices more often Monitor whether the customer has opened the email
Managing debtors Invoices page in Xero Will show those viewed and sent if sent by email Option to send statements in bulk Also option of Invoice reminders Reconciliation MUST be up-to-date otherwise statements and reminders may go to customers who have already paid Debtor process to consider □ Who? □ How often?
Managing expenses Know where your money is going – know what to measure Job tracking an option at a certain scale More simply, get your Chart of Accounts right Your chart of accounts should reflect the way you quote jobs Ask your accountant to set it up the way YOU want it
Other processes and systems A number of “Add Ons ” are available to help manage your entire business Workflow Max Debtor Daddy Fathom Budgeting and forecasting also useful tools in cash flow management Final mention should go to PEOPLE Who is the most appropriate person? Are they trained?
Wrap Up Cloud based software is a must Know your accounting program What it can do for you What add-on programs are available Know what you need to monitor Know what you need to measure Get the right people doing the right jobs
GETTING PAID IN THE CONTRUCTION INDUSTRY Two ways of categorising building work: 1.Residential Building Work 2.Commercial Work
RESIDENTIAL BUILDING WORK Regulated by the Home Building Act 1989 (NSW)
RESIDENTIAL BUILDING WORK 1. What is Residential building work? 2. Requirements for contracts: → Standard Forms → MBA → HIA → Department of Fair Trade (owner friendly) → ABIC (architect administered) 3. Max deposit & progress claims 4. Must have Home Building Compensation Fund Insurance 5. Sanction if requirements not met
RESIDENTIAL BUILDING WORK Specific requirements for contracts set out in sections 7 and 7AA (for small jobs, which from 1 March 2015 are less than $20,000)
RESIDENTIAL BUILDING WORK Mandated maximum deposit of 10% of the contract price (section 8)
RESIDENTIAL BUILDING WORK Only two types of progress claims permitted (for contracts over $20,000): I. Specified amount or percentage of the contract price following completion of a specified stage of work (which must be described in clear and plain language); or II. For labour and material in respect of work already performed, supported by invoices and payment intervals as set out in the contract or on an “as invoiced” basis.
RESIDENTIAL BUILDING WORK Builders not entitled to damages for breach of contract, and contract is unenforceable, if the requirements of the Act are not met
RESIDENTIAL BUILDING WORK Practical tips: → Think about stages – no such thing as too many → Don’t fall behind: → Security account → Rights of suspension? → Consent to variations by bank? → If it’s not in writing it didn’t happen!
COMMERCIAL WORK The rights and obligations of the parties are as set out in the contract. These rights are interpreted using the common law, and may be altered by legislation.
COMMERCIAL WORK Building and Construction Industry Security of Payment Act 1999 (NSW) → Applies across the vast majority of contracts in the construction industry including related areas (for example designers, engineers, suppliers, etc). → Will also apply to sub-contractors doing residential work.
COMMERCIAL WORK → No need for a formal contract, the Act applies to “a contract or other arrangement”. → Provides a statutory right for progress payments for construction work and related goods and services (“pay when paid” provisions have no effect ).
COMMERCIAL WORK Payment claims are to be made in accordance with the contract (or if none stated the last day of each named month)
COMMERCIAL WORK Sets maximum due dates for payment (contract can provide for earlier due dates): 1. For a Principal to a Head Contractor, 15 business days after a payment claim is made, and 2. To a subcontractor, 30 business days.
COMMERCIAL WORK There is no longer a requirement for a payment claim to state that it is made under the Act, unless where sub-contractor is doing residential work for another contractor
COMMERCIAL WORK The requirements for a valid payment claim under the Act are set out in section 13 – these must be adhered to be a valid claim
COMMERCIAL WORK If no response (called a “payment schedule”) is served within the time allowed by the contract, or 10 business days of the payment being served (whichever is earlier), then the amount claimed in the payment claim is due and owing
COMMERCIAL WORK If the payment claim is disputed with a payment schedule the parties can proceed to adjudication. This is a fast- tracked system which can be finalised as quickly as a month from service of a payment schedule.
COMMERCIAL WORK Subcontractors are able to have the amount disputed in an adjudication withheld by the Principal from the Head Contractor pending the finalisation of the adjudication
COMMERCIAL WORK → An adjudication can be filed as a judgment and enforced in the same way as any other judgment → Adjudication is only interim – the result of any adjudication can be reversed in litigation at a later date
COMMERCIAL WORK Practical Tips: → Make standard invoices comply with the Act → Keep statement made under the Act on the invoice → Make invoices cumulative, i.e. show amounts outstanding from previous invoices on each new invoice. → Rights of suspension → If it’s not in writing it didn’t happen!
THANK YOU
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